(MONEY Magazine) – One look at Richard Theis' elegantly tailored $300 suits and you know that this man likes to live well. Theis, 40, is a federal attorney for the Equal Employment Opportunity Commission in Washington, D.C. who last year made $78,244 in salary, bonuses and retroactive pay. He was vacationing in Germany and Italy in September when he heard reports of the U.S. stock market's rumblings prior to the crash. An avid amateur trader, he had about $60,100 tied up mostly in over-the-counter stocks and mutual funds at the time. ''I thought, 'Maybe I ought to get the hell out of the market,' '' he says. But like millions of others, he failed to follow through. A few days after he arrived back at his apartment near DuPont Circle, the market collapsed. Theis lost $10,480 on Black Monday, Oct. 19, or roughly 17% of his portfolio. And his losses kept on coming, compounded in part by a rash move. Lured by low prices (and a broker's tip), he borrowed against his stocks the next day to buy 400 shares of Avery International, a paper-products company that had dropped $5 to $16 a share. Trouble was, by the time his order was processed on that wild 608.1-million-share Tuesday, the price had bounced back to $20.87. Theis, who had committed to buy the stock at the market price, was forced to go deeper into margin debt to pay up. Within moments, however, Avery International slid back to close at $17.25 -- and Theis had lost another $1,448 on his $8,350 gamble. Two days later, he had to add $4,000 to the collateral in his margin account to keep the brokerage firm from starting to sell off his securities. Since then, Theis has done no trading -- and lots of soul searching. ''I've been too numb to trade,'' he says. ''I just keep wondering, 'What do I do with the stuff I have?' '' While Theis stews, his investments continue to lose. His once substantial stock and mutual fund portfolio was recently down to $44,785, a 35% paper loss since the crash (see the table on page 128). Chastened, he is now mulling whether to keep his portfolio as it is for the next two years -- long enough, he figures, for the market to stabilize and his generally small-company shares to rebound to their old highs. Alternatively, he is thinking about completely revamping his portfolio, junking his OTC shares, creating a real loss of $11,915, and then reinvesting the proceeds in safer blue chips. There is also the matter of his way of life: the snappy suits, the $13,000 Acura Integra with cellular phone, the European vacations. Glancing somewhat ruefully at his recently purchased $1,000 stereo speakers and $1,600 dining room set in his $775-a-month, one-bedroom apartment, Theis declares: ''I can't go on spending like I did. I need a raincoat, but I won't pay $350 for it at Brooks Brothers; I'll get it at Syms for $107.'' He has even put off his search for a home to buy. ''Too hard to raise the cash for a down payment,'' says the sobered speculator. Theis does, however, own three investment condominiums in the metropolitan D.C. area -- all bought in the past five years during the bull market feast. He puts their total worth at $210,000, of which $39,350 is his equity, and plans to keep them for another five or six years. Meantime, he can take tax write-offs for depreciation and other expenses. He figures his 1987 deduction will be about $24,000. Richard Theis is not alone in re-evaluating his way of living, and spending, in light of the crash. Millions of Americans are doing the same thing. Says Dr. Edward Hallowell, a psychiatrist at Harvard Medical School who has studied people's feelings about money: ''Surprisingly, investors reacted quite sanely to the massive trauma of the Wall Street drop. It's as if they knew the past year or two was a paid holiday, and now that the bill has come due, they're ready to start planning sensibly for the future.'' For Theis, however, breaking old habits may be hard to do. Single since his childless six-year marriage ended in divorce in 1981, he thrives on the Washington social whirl. He belongs to coed racquet and running clubs (total dues: $400 annually); regularly makes the rounds of Capitol Hill luncheons and receptions; has frequent dinner dates; and likes to end the evening at night spots that feature ballroom dancing. ''My rumba and waltz are great,'' he says, ''but my foxtrot needs work.'' Recreation alone cost him $5,150 last year. Theis did not depend on stock market profits to support his free-spending ways, since his ample salary was sufficient. But the occasional investment profits, including about $1,000 of realized gains in the seven months before last October, didn't hurt. Beyond that, totaling up his mounting paper profits every other week, Theis felt ever richer -- flush enough, say, for weekend drives to New York City expressly to shop for clothes. Typical tab: $500 per spree; $1,600 total on clothing in the past 12 months. His savings, which he keeps in money-market funds and a checking account, amount to only $7,888. Theis first caught the investing bug 16 years ago while studying business as a graduate student at the University of Southern California in his native Los Angeles. After earning his M.B.A. in 1972, he opted for a career in employment law, a choice he attributes largely to the example of his mother, who had experienced sex discrimination while struggling to support the family as a bookkeeper after divorcing his father, a research chemist for Lockheed.

STIFLING AN URGE Theis earned his law degree at Los Angeles' Southwestern University in 1975 and moved to Washington, D.C. the next year. After working for two years as one of 20 lawyers at the headquarters of the National Treasury Employees Union, he joined the Equal Employment Opportunity Commission as a trial lawyer in 1978. He got his current job as head of the EEOC's four-lawyer legal standards branch in 1982.

Until that year, however, Theis had to stifle his urge to invest. At first, he had little spare cash after living costs and helping to pay for his wife's doctoral studies in African history at Yale. He believes that her stay in New Haven further damaged the couple's already strained relationship, leading to their divorce. Though he pays no alimony, the settlement further sapped his capital. But with the onset of the bull market, plus heftier paychecks associated with his 1982 promotion, he began slowly building a portfolio. Usually acting as his own stock picker, he made his choices according to a method that he still favors. ''I look for small, family-owned companies, because I think that means good management,'' he explains. ''And I do a lot of homework. When I read in the Wall Street Journal or Investor's Daily about a new company with a great idea, I call the firm for information on earnings, market strategies and growth. At little companies I sometimes get put through directly to the CEO.'' For additional help in tracking firms, Theis uses research furnished by his broker, a former racquetball opponent who is now at Paine Webber in San Francisco. ''I like dealing with him because when I come home, he's still at - work out there,'' says Theis, an inveterate telephoner who has four phones in his apartment plus the one in his car. Total monthly phone bill: $71. In addition, he buys penny stocks from Graystone Nash, a brokerage and small- company underwriter based in Bloomfield, N.J. His current holdings are heavy in high-tech, including Cypress Semiconductor and the software makers Autodesk and System Software, and in fledgling firms such as Covasorb Bionic Surfaces, a biotechnology outfit, and WINE, a German company that has developed a new process for making wine without preservatives. Among household names in his portfolio are Tyson Foods, the poultry-products company (''their chicken beats Holly Farms','' says Theis) and the long-distance telephone firm MCI Communications. Generally Theis buys $2,000 or $4,000 worth of $10 to $20 shares, sells the stock after realizing a 20% to 30% profit, and reinvests the proceeds in other securities. But when a stock proves disappointing, he says, ''I've learned through experience to get out fast, like in six weeks.'' He adds: ''I couldn't tell you how much I'm in and out of in a year.'' Though he has no idea what his total yearly trading costs are, he points out that he keeps them low by doing some business at the discount brokerage Charles Schwab and that he also gets bargain rates as a frequent trader from his pal at Paine Webber. Theis is less quick on the trigger with his $16,573 in three mutual funds, all of which are in the Fidelity group. He has kept most of his $9,810 Individual Retirement Account in the $7 billion Magellan growth fund, reserving about a third of his IRA money for what he hopes will be timely switches, such as the two he made into, out of and back into Fidelity Europe last year. Fidelity Europe has been off about 29% since Black Monday, however. As for Fidelity Select-Financial Services, down 29.3% since he put in $9,576 in August, he has so far been content to leave it alone partly, he says, ''because Fidelity is now charging $25 a switch among its Select funds instead of $10.'' But Richard Theis is far too dedicated a trader to balk for long at a hike in the cost of switching. Already thinking of getting back to his market wheeling and dealing, he muses: ''If I sell my current holdings at a loss and add the bigger tax refund I'll get to the sales proceeds, I'd have a chunk of money to reinvest in securities that will grow in a bear market.'' Warming to the idea, he goes on with rising interest in his voice: ''I might buy / Commercial Credit ((a consumer-loan company)), since I think people will have to borrow more because of the crash. I've looked into the firm, and it seems to be running lean and mean.''

BOX: HOW THEIS GOT WHOMPED AGAIN AND AGAIN Richard Theis' portfolio lost 17% by the close of trading on Black Monday. The next day, he rashly bought 400 shares of Avery International. His stock and mutual fund holdings continued to decline, and as of Dec. 1, he had suffered a total drop of 35%. For simplicity's sake, we list Avery as if he owned the stock on Oct. 19 and do not include brokers' commissions in the cost figures.

Market value on Market value on Cost Oct. 19, 1987 Dec. 1, 1987 STOCKS

Avery International (400 shares) $8,350 $7,200 $7,400 Covasorb Bionic Surfaces (2,400) 6,350 3,000 888 Bush Industries (200) 6,075 3,850 2,700 System Software (300) 5,250 4,725 2,625 Cypress Semiconductor (350) 4,725 3,325 2,887 Autodesk (140) 4,165 3,185 2,450 Tyson Foods (225) 3,937 3,600 3,262 MCI Communications (400) 3,650 3,500 3,600 WINE (600) 1,950 3,000 2,400 Total stocks $44,452 $35,385 $28,212

FUNDS

Fidelity Magellan* (170 shares) $10,203 $7,267 $6,836 Fidelity Select-Fin. Services (269) 9,576 7,465 6,763 Fidelity Europe* (260) 4,230 4,098 2,974 Total funds $24,009 $18,830 $16,573

*IRA investment

BOX: Bottom Line

Richard Theis' investments accounted for 38% of his expenses in the 12 months that ended Oct. 31, 1987:

INCOME

Salary, bonuses and back pay $78,244 Rent from condos 21,300 Margin account 8,856 Tax refunds 7,061 Interest and dividends 1,155 Capital gains 1,000 Medical insurance payout 701

Total $118,317

OUTGO

Investments $44,921 Mortgage payments, condo fees 30,168 Rent 9,000 Taxes 6,681 Recreation 5,150 Furniture and house care 3,917 Pension plan payments 3,850 Loan repayments 2,872 Contributions, dues 2,270 Gifts 1,800 Clothes 1,600 Car costs 1,448 Medical expenses 1,362 Groceries 1,350 Telephone 855 Homeowners insurance 823 Miscellaneous 250

Total $118,317

ASSETS

Rental condominiums $210,000 Personal property 38,000 Retirement accounts 37,649 Investments 37,417 1987 Acura 10,175 Savings and checking accounts 7,888 Debt receivable 1,400

Total $342,529

LIABILITIES

Mortgages $170,650 Margin account and auto loan 15,947

Total $186,597

NET WORTH

Total $155,932

BOX: The Advice Take fewer risks in your investing

-- THE PROBLEMS Whether to sell Theis' stocks, reinvest more conservatively and rack up tax savings.

-- THE SOLUTIONS 1. Sell selectively. 2. Put the proceeds into quality stocks. 3. Make tax savings a secondary consideration.

Meeting with Richard Theis at Money's request, Wayne Nelson, a financial consultant at Merrill Lynch, and tax accountant Theodore Stone of Ernst & Whinney, both in Washington, D.C., offered this advice: Portfolio restructuring. Theis should take advantage of brief market rallies over the next few months to sell his shares of System Software, Cypress Semiconductor and Autodesk, all extremely volatile stocks with double-digit price/earnings ratios. His high exposure to such shares (they make up 17% of his portfolio) largely explains why his investments had fallen 17% more than the S&P 500 as of Dec. 1. He should also sell his shares of Covasorb and WINE, penny stocks of little-known firms that could suffer drastically if a recession pares sales and profits. Theis should leave most of his $9,810 IRA in Fidelity Magellan, a fund that has done well over the past five years, but should transfer the $2,974 now in the overseas stock fund Fidelity Europe to Fidelity Global, an international bond fund that is less risky and should profit if the dollar continues to weaken. In addition, he should get out of Fidelity Select-Financial Services, because the industry is in for rough sledding; several firms have already cut back. Nelson suggested that Theis use the sales proceeds to increase his holdings of high-quality stocks such as Bush Industries, Tyson Foods, MCI or Avery International. All are solid companies with good earnings records. He added that Theis should plan to hang on to his securities at least two years, since holding them for only a few months does not give the small companies he favors enough time to turn the big profits that might push up share prices. Tax savings. Any loss from the sale of Theis' stock can be used to offset capital gains, thereby lowering his taxes. He can also write off against ordinary income another $3,000 in losses this year and carry over additional losses to future years. But Stone cautioned Theis not to sell principally for tax savings. Rather, he should dump stocks only for fundamental reasons -- because, say, they show no signs of rising in price or they no longer fit his investing objectives. Tax savings, says Stone, should be a secondary consideration. Stone also advised Theis to adjust his withholding at work, which was so high in 1986 that he overpaid his federal and local taxes by $7,000. That money could have increased his cash flow by almost $600 a month. Once Theis' cash flow improves, Stone recommended that he start paying off the remaining $7,091 balance on his car loan early, since the interest he can deduct is shrinking, from 40% in 1988 to zero by 1991. Finally, Stone noted that Theis can deduct no more than $25,000 of any losses he sustains on his condos. He is already deducting $24,000, and if his adjusted gross income exceeds $100,000, the amount he can deduct will be reduced -- to zero if his income reaches $150,000. At that point, he could offset his condo losses only with additional passive income -- for instance, from an investment in a nonleveraged real estate limited partnership.

Theis decided to sell his penny stocks and System Software to take advantage of the $4,000 loss he can claim. Of his other securities, he thought Avery and MCI most worth investing more money in. ''Even if we go into a recession, people have to use the phone,'' he said. He was staying in Fidelity Select- Financial Services because of uncertainty about which fund to switch to. And he plans to reduce his withholding and speed up his car loan payments.